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I had expected a little more downwards movement towards a target at 1,280 for Monday’s session before an upwards correction began, but the correction has begun at the beginning of the new trading week.

Movement above 1,307.45 confirmed a small degree correction was underway. At that stage the parallel channel on the hourly chart, redrawn using Elliott’s technique, may show where this correction should find resistance.

Click on the charts below to enlarge.

S&P 500 daily 2012

We have recently seen a very large trend change on the S&P 500 and a new downwards trend, to last months, has begun.

At primary degree wave A is an expanded flat correction. Wave (A) black within it subdivides into a three, and wave (B) black is over 105% of wave (A) black at 123%. The minimum requirements for an expanded flat are met. We should expect wave (C) black to subdivide into a five and move price substantially beyond the end of wave (A) black at 1,074.77.

At 967 wave (C) black would reach 1.618 the length of wave (A) black. If price continues through this first target, or it gets there and the structure is incomplete, then our second (less likely) target is at 685 where wave (C) black would reach 2.618 the length of wave (A) black.

Wave (A) black lasted 4 months. Wave (B) black lasted 6 months. We may expect wave (C) black to last at least 4 months, if not longer.

Within wave iii pink no second wave correction may move beyond the start of the first wave. This wave count is invalidated with movement above 1,415.32. When the structure of wave iii pink is complete then the invalidation point can be moved to the low of wave i pink at 1,357.38.

Main Hourly Wave Count.

S&P 500 hourly 2012

Movement above the short term invalidation point at 1,305.45 indicated that wave (iii) green must be over and upwards movement would be wave (iv) green. We did not get the further downwards movement that I was expecting to end wave (iii) green.

Ratios within wave (iii) green are: wave iii orange is just 1.22 points short of 1.618 the length of wave i orange, and wave v orange has no adequate Fibonacci ratio to either of i or iii orange.

On the 5 minute chart so far within wave (iv) green wave a orange subdivides into a five as does wave c orange. Wave c orange could be over here; the subdivisions are all complete.

When we redraw the parallel channel using Elliott’s first technique wave (iv) green has slightly overshot the upper edge.

It looks most likely that wave (iv) green is over already. If this is correct then price should move lower tomorrow.

At 1,244 wave (v) green would reach equality with wave (i) green. At 1,245 wave iii pink would reach 2.618 the length of wave i pink. This gives us a high probability 1 point target zone. If this wave count is correct then this target may be met at the end of this week or early next week.

Downwards movement should continue with reduced momentum.

In the short term for this wave count no second wave correction within wave (v) green may move beyond the start of its first wave. This wave count is invalidated with movement above 1,316.39.

If this wave count is invalidated with upwards movement then wave (iv) green is not over and we may expect it to move slightly higher as the final fifth wave within c orange extends, or we may consider the alternate below.

Alternate Hourly Wave Count.

S&P 500 hourly alternate 2012

If we simply move the degree of labeling within wave (iv) green down one degree then we may be seeing a flat correction unfold and only wave a orange complete.

If wave (iv) green is a flat correction then wave b orange must reach at least 90% of wave a orange at 1,294.

Thereafter, wave c orange should take price above the high of wave a orange at 1,316.39.

This alternate would see wave (iv) green move price substantially outside of the parallel channel, even when we widen it slightly to include all of wave iii pink so far. This reduces the probability of this wave count.

Wave (iv) green may not move into wave (i) green price territory. This wave count is invalidated with movement above 1,343.13.

The mid term target for wave iii pink to reach 2.618 the length of wave i pink is the same at 1,245.